A man accused of murdering five of his relatives at their Sydney home told a fellow prisoner he bought the hammer used in the attack from a $2 shop because it had dummy CCTV cameras, a court has heard.

Sydney's Supreme Court heard Robert Xie told an undercover police officer he planned to use DNA from a dead man to implicate someone else in the murders.

Prosecutors told the court Xie's fellow inmate has agreed to testify that Xie told him where the weapon had been hidden and that it could still be found.

The court heard that the inmate, who would be referred to as witness A, would testify about numerous conversations he had with Xie in prison.

Xie, 50, is accused of using a hammer-like object tied to his wrist to bludgeon his brother-in-law and his family at their home in Boundary Road, North Epping, in July 2009.

Norman Lin, Mr Lin's wife Lily, their sons, Henry and Terry, and Ms Lin's sister Irene all died after being beaten around the head in an overnight attack.

Xie has pleaded not guilty to each of the murder charges.

Prosecutor Mark Tedeschi QC told the court on Monday that Xie allegedly hatched a plot in prison to implicate someone else over the killings.

He said Xie believed he would not be committed to stand trial, but if he was, he would embark on what he referred to as plan B.

Mr Tedeschi said while in jail Xie told an undercover police officer he planned to place the DNA from a dead man on the murder weapon or at the crime scene in order to blame someone else for the murders.

Defendant 'physically incapable' of murdering family

Mr Tedeschi said witness A would also testify that Xie told him he purchased the hammer at a $2 shop which he believed only had dummy surveillance cameras in it.

The prosecutor conceded witness A had spent most of his life in prison for offences that include dishonesty and his most recent sentence was substantially reduced in exchange for giving evidence.

Outlining the defence case, Graham Turnbull SC said his client was physically incapable of having committed the crimes.

The barrister asked Xie to stand up in the dock and told the jury his client was only 170 cm tall and weighed 60kg.

Mr Turnbull said Xie has no prior criminal convictions and there was no proof the killings were carried out by one person.

"It is not accepted that this was the work of one person," Mr Turnbull said.

He said no-one had come forward to testify that Xie was a violent person capable of murdering the family in the dark.

Mr Turnbull said police had tried to frame Xie and urged jurors to focus on evidence about the the crime scene and whether or not the crown proposition could be proven.

At the opening of the trial on Friday the court was told Xie was motivated by a bitterness towards the adults in his family and that some of the bodies were left in a "bizarre manner".

The court heard each victim was beaten about the head, but that Mr Lin and his wife had particularly brutal injuries, with their faces "smashed" and completely destroyed.